Product Description

Here's how to find a new fractional value of capital to invest
in every trade to maximize returns subject to a constraint on
drawdown, using a variation of the optimal f money management
strategy.

Over the past four years, we have
developed and applied evaluation
software to trading systems
that use money management
techniques and have studied
the impact of these techniques
on trading systems. A
new money management strategy
called secure f is one of the
outcomes of that work, and
here, we will demonstrate how
to find a new fractional value of capital to invest in every trade
to maximize returns subject to a constraint on drawdown.

Secure f can be a conservative strategy or an aggressive
one, depending on the level of acceptable maximum drawdown
selected by the trader in question. It is a modification
of the optimal f strategy that was introduced by Ralph Vince
in his Portfolio Management Formulas. Secure f differs from
optimal f because it takes historical drawdowns into account
and uses information about the prices of the underlying
security.

OPTIMAL F

Optimal f is a money management strategy that can be used
to improve and maximize system performance by finding the
best percent of capital to invest in each trade. This strategy
determines which percent of equity invested in a trade would
have yielded the highest return based on a sequence of past
trades. Because traders are able to employ a variety of money
management strategies, it can be useful to know what would
have been the optimal amount to invest in each case.
The concept of percent or fractional strategy itself comes
from the Kelly formula, which estimates the percentage of
your capital to trade when the amounts won and lost are not
equal:

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